Lancashire Holdings Limited · LSE:LRE
Lancashire — Investor Presentation (November 2015)
45 slides from Lancashire's investor presentation, November 2015
Slide 1: Investor Presentation Q3 2015
Investor Presentation November 2015 Q3 2015 www.lancashiregroup.com
Slide 2: Safe harbour statements
Safe harbour statements CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELED LOSS SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS “BELIEVES”
Slide 3: Lancashire Group: Sticking to the Strategy, Managing the Cycle
Lancashire Group Sticking to the Strategy, Managing the Cycle • “Lancashire's strategy since day one has always been to write the most exposure in a hard market and the least in a soft one. There are now abundant reinsurance and retrocession opportunities that allow us to maintain our core insurance
Slide 4: Sticking to the Strategy, Managing the Cycle
Sticking to the Strategy, Managing the Cycle • Multiple platforms able to offer full spread of security to clients as they look to different options – rated company, Lloyd’s, collateralised • Diversified across classes and between specialist insurance/reinsurance classes - no reliance on a single do
Slide 5: Changes from last year – what's new?
Changes from last year – what’s new? • Exec Team • Alex Maloney now in situ as Group CEO for six quarters, consistency of results evident. Remainder of Executive Team are well ensconced. • Cathedral Group now integrated • Incorporated Cathedral exposures in stochastic modeling of PMLs and aggregatio
Slide 6: Changes from last year – what's new?
Changes from last year – what’s new? • Restructured Lancashire reinsurance program for 2015 • Non-marine retrocession program moved from a single-limit, aggregate basis in 2014 to a more capital-efficient, reinstatable, occurrence based program in 2015, with an additional $20 million of limit and at
Slide 7: Very strong results for 2013, 2014 and YTD 2015…and since inception
Very strong results for 2013, 2014 and YTD 2015…and since inception Inception to date (1) 2013 2014 YTD 2015 Return on equity (2) (3) 18.6% (4) 18.9% 14.7% 9.3% Net premiums written $606.4m (5) $557.6m $742.8m $394.4m Combined ratio 62.4% 70.2% 68.7% 73.5% (including G&A) Loss ratio 31.1% 33.1% 31.7
Slide 8: Our long-term performance is one of the most consistent in our peer group
Our long-term performance is one of the most consistent in our peer group (1) RoE ranking in peer group (1) 5 year compound annual RoE (3) 20% Company(2) 2010 2011 2012 2013 2014 5 yr avg Beazley 5 2 1 1 1 1 Lancashire(4) 1 1 3 5 4 2 15% Hiscox 7 4 8 3 2 3 Ren Re 2 11 4 4 7 4 Everest 10 7 2 6 3 4 10
Slide 9: Lancashire versus the FTSE 250
Lancashire versus the FTSE 250 Total shareholder return(1) Return on equity(2) 600 30% 500 +392% 25% 400 20% 300 15% 200 +111% 10% 100 5% 0 0% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Lancashire FTSE 250 Median FTSE 250 ROE Lancashire R
Slide 10: Consistent performance to date – TVC and volatility
Consistent performance to date – TVC and volatility Five year Total Value Creation CAGR (Q4:09 to Q4:14) • From Dowling and Partners (D&P) analysis, Lancashire shows limited volatility and strong consistency of results • Shows limited volatility on both sides of the balance sheet: • Most Bermuda cat
Slide 11: Underwriting comes first
Underwriting comes first 11
Slide 12: Underwriting comes first
Underwriting comes first 67% insurance 33% reinsurance 36% nat-cat exposed 64% other property 30% property cat 17% property other 1% terrorism 7% political risk property reinsurance 4% 14% retrocession 1% Lloyd’s 40% energy other 2% property D&F 10% offshore WW energy 15% energy 19% marine cargo 5%
Slide 13: Consistent performance to date - Exceptional underwriting performance
Consistent performance to date - Exceptional underwriting performance Underwriting income by line of business 400 300 200 ($m) 100 0 (100) 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Property catastrophe Property terrorism Property political risk Property all others Energy WW offshore Ener
Slide 14: Consistency: Exceptional underwriting performance
Consistency: Exceptional underwriting performance 5 year 2010 2011 2012 2013 2014 YTD 2015 average(1) Loss ratio 27.0% 31.7% 29.9% 33.1% 31.7% 30.7% 30.2% Acquisition 17.3% 19.6% 20.5% 22.1% 21.4% 20.2% 25.9% cost ratio Expense ratio 10.1% 12.4% 13.5% 15.0% 15.6% 13.3% 17.4% Combined 54.4% 63.7% 63.
Slide 15: Kinesis Capital Management Indicative Results
Kinesis Capital Management Indicative Results Mean loss scenarios (10% EL) No loss scenarios Limit of Limit of Limit of Limit of Limit of Limit of $300m (1) $500m (1) $1B (1) $300m (1) $500m (1) $1B (1) Lancashire investment (2) 24.2 40.4 80.8 24.2 40.4 80.8 RoL (net) 21.0% 21.0% 21.0% 21.0% 21.0% 2
Slide 16: Fee income
Fee income Kinesis • Earned $6.2 million of underwriting fees in 2014 plus a $4.7 million equity pick-up on LHL’s 10% investment in Kinesis Holdings • Profit commissions of $5.7 million earned YTD 2015 on January and February 2014 underwriting cycles with an additional $0.1 million expected in Q4 20
Slide 17: Effectively balance risk and return
Effectively balance risk and return 17
Slide 18: Managing the Cycle – reducing net exposures
Managing the Cycle – reducing net exposures • Since April 2012, which was the high-tide mark of the pricing cycle, the Group has reduced PMLs across all key exposures, in spite of the addition of Cathedral • 400 PMLs are not perfect predictors of losses but they do provide consistent measures of cat
Slide 19: Exposure management – Increasing RI purchases
Exposure management – Increasing RI purchases Lancashire first loss XL limit 2012 vs 2015 * 2015 Non-US property deductible eroded by year to date Energy loss Terror Metro and Non Metro excludes terror pools First loss limit purchased by Lancashire on an excess of loss basis, excluding ILWs, quota s
Slide 20: Exposure management – Increasing RI purchases
Exposure management – Increasing RI purchases Cathedral first loss XL limit 2014 vs 2015 150 135 120 105 90 Outwards RI 1st loss limit $M 75 2015 60 Outwards RI 1st loss limit 45 2014 30 15 0 Energy GOM Energy GOM Contingency Contingency Aviation Marine Cargo Aviation Aviation War Aviation War Aviat
Slide 21: Managing the Cycle – strong weighting to low-attrition classes
Managing the Cycle – strong weighting to low-attrition classes Accident year attritional loss ratios – 5 year average 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% • Carefully balance classes with known attritional exposure (energy, marine, lower layer cat xl) with low attrition exposures (te
Slide 22: Reserve adequacy
Reserve adequacy Ultimate development by accident year – LUK/LICL/Cathedral combined* Ultimate Development by Accident Year - Group 500 450 400 2006 350 2007 Ultimate losses $M 2008 300 2009 250 2010 200 2011 150 2012 2013 100 2014 50 0 4 8 12 16 20 24 28 32 36 40 Development quarter *Cathedral Unde
Slide 23: Effectively balance risk and return – investment philosophy
Effectively balance risk and return – investment philosophy • Our market outlook remains subdued: • While the U.S. economy continues to improve, inflation remains muted and global growth remains depressed • Central bank policies, geopolitical events, and oil price volatility continue to exacerbate r
Slide 24: Capital preservation and interest rate risk management
Effectively balance risk and return Capital preservation and interest rate risk management Asset allocation Credit quality cash and hedge funds, short term AA, 44% non agency 8% securities, structured 10% other products, government 10% bonds and agency debt, 4% structured products, 8% duration avera
Slide 25: Operate nimbly through the cycle
Operate nimbly through the cycle 25
Slide 26: Operate nimbly through the cycle: proven record of active capital management
Operate nimbly through the cycle proven record of active capital management YTD 2007 2008 2009 2010 2011 2012 2013 2014 total 2015 $m $m $m $m $m $m $m $m $m $m share repurchases 100.2 58.0 16.9 136.4 - - - 25.0 - 336.5 special dividends (1) 239.1 - 263.0 264.0 152.0 172.6 295.9 289.5 287.2 1,963.3
Slide 27: Financial flexibility - Capital management
Financial flexibility - Capital management Review of stress tests Excess capital builds Constant adjustment of capital and approval of during the year if profits business plan with exceed share capital projection at repurchases & ordinary an example over 12 months the November Board dividends meetin
Slide 28: Managing the cycle - dividend yield
Managing the cycle - dividend yield (1) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% (3) 2010 2011 2012 2013 2014 5 year average (2) Lancashire ordinary dividend Lancashire special dividend sector average (1) Dividend yield is calculated as the total calendar year cash dividends divided by the year end sh
Slide 29: Cross cycle consistency - RoE
Cross cycle consistency - RoE five year standard deviation(1) in RoE • Lancashire has one of the best performances and yet the lowest volatility versus peers • Evidence of adherence to business plan and strong risk management and a proven, successful cross-cycle strategy 25% 20% Beazley Lancashire F
Slide 30: Conclusion
Conclusion 30
Slide 31: Conclusion
Conclusion • Lancashire has one of the best performances and yet the lowest volatility in the London and Bermudian markets • Our strategy is designed to cope with hard and soft markets, managing capital and exposures to provide superior risk-adjusted returns across the cycle • Group management is fu
Slide 32: Appendices
Appendices 32
Slide 33: Lancashire: Property catastrophe reinsurance
Lancashire: Property catastrophe reinsurance Mitigating impact of falling rates Ability to compete • We bought retrocession with a reinstatement to cover us for • Offer reinstatement (We don’t need fronting) two losses attaching $50m lower than the aggregate • Willing to offer more multi-layer suppo
Slide 34: Lancashire: Energy
Lancashire: Energy Mitigating impact of falling rates Ability to compete • Deepwater GOM portfolio still requires high limits and • Large lines make us a relevant and important component of client demand maintained so far leadership panel • Oil price issues continuing to suppress activity levels • W
Slide 35: Lancashire: Property terrorism and political violence
Lancashire: Property terrorism and political violence Mitigating impact of falling rates Ability to compete • Instability around the world continues to highlight the • Lancashire’s line size ensures our relevance and value perils of Terrorism and Political Violence and drive as a key market to broke
Slide 36: Lancashire: Property political and sovereign risk
Lancashire: Property political and sovereign risk Mitigating impact of falling rates Ability to compete • Demand driven by continued perception of threat of • Proven ability and willingness to lead business political and sovereign risk from geo-political and • We provide transparency, good service,
Slide 37: Lancashire: Marine
Lancashire: Marine Mitigating impact of falling rates Ability to compete • We write the risks with large limit requirements which • Large lines make us relevant and dangerous to ignore are more insulated from the lows of rating trend in as a quoting market to brokers respect of Hull • We have an abi
Slide 38: Lancashire: Aviation and satellite
Lancashire: Aviation and satellite Mitigating impact of falling rates Ability to compete AV52 • Large lines on AV52 make us relevant and dangerous to • No attritional losses ever ignore as a quoting market to other brokers • Large line size therefore all opportunities made available and • We have th
Slide 39: Lancashire: RPI and underwriting statistics
Lancashire: RPI and underwriting statistics Cumulative RPI 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Property catastrophe 100 100 97 100 92 100 116 114 99 87 reinsurance Energy GOM 100 80 64 137 139 140 140 136 125 118 Energy WW offshore 100 80 68 84 88 97 100 97 91 79 Terrorism 100 86 7
Slide 40: Cathedral: Property reinsurance
Cathedral: Property reinsurance Core Non-core / Opportunistic U.S. Portfolio – Small to medium Mutuals • US Nationwide mega accounts • Home owners • Florida private reinsurance market prefers D&F • Farm owners • Super Regional US accounts • Automobile (physical damage) • Retro • Small commercial pro
Slide 41: Cathedral: Property direct & facultative
Cathedral: Property direct & facultative Core Non-core / Opportunistic U.S. open market - Average line size circa $2m Will expand in to any class/territory following • Small to midsized ‘soft’ occupancy focus significant losses resulting in distressed conditions • Low to mid level excess of loss and
Slide 42: Cathedral: Aviation reinsurance & satellite
Cathedral: Aviation reinsurance & satellite Core Non-core / Opportunistic Airline XL - Core part of the account exposed to major Bigger direct clients catastrophes but aggregate focused on small to medium • No pay back / do they need to buy? size direct insurers enabling better portfolio management
Slide 43: Cathedral: Aviation direct & war
Cathedral: Aviation direct & war Aviation Hull & Liabilities Market Support • Established market leading team in General Aviation Consortia (particularly rotor-wing) and lower tier Airlines • Our War underwriting is conducted for us and on behalf • Team is getting good broker and client support desp
Slide 44: Cathedral: Cargo
Cathedral: Cargo Core Non-core / Opportunistic Marine Cargo Marine Cargo • Established, relationship driven, higher quality, marine • Cargo stock-throughput – where non catastrophe cargo accounts with proven profitability and good risk exposed management • Cargo consequential loss • Complementary ra
Slide 45: Total shareholder return
our goal: to provide an attractive risk-adjusted total return to shareholders over the long-term Lancashire total shareholder return vs. major index returns 550% 500% 450% 400% 350% total shareholder return 300% 250% 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 350 Insurance S&P Financia
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